FrontPoint Partners to Close Funds After Redemption Requests

May 20 (Bloomberg) -- FrontPoint Partners LLC will close
some of its hedge funds after clients asked to withdraw money
amid charges a manager benefited from an illegal stock tip.

“We have received capital redemption requests from some of
our clients,” Steve Bruce, a spokesman for Greenwich,
Connecticut-based FrontPoint said in a statement today. The firm
“will be winding down select strategies.”

FrontPoint oversaw $7 billion at the start of November
before Chip Skowron, a co-portfolio manager of its health-care
funds, was tied to claims by prosecutors that the firm got
advance notice on drug-trial results. U.S. officials are
pursuing a crackdown on insider-trading at hedge funds, with
more than 40 people pleading guilty or facing criminal charges
or civil lawsuits for benefiting from non-public information.

FrontPoint’s assets had slipped to $4.5 billion by January
and the firm closed its health-care funds. The New York Times
reported earlier today that FrontPoint planned to shut most of
its hedge funds by the end of May.

FrontPoint will honor requests by investors to pull money,
Bruce said in the statement. The firm plans to maintain its
“core” hedge funds, he said.

“While smaller as a result of these client requests,
FrontPoint’s business will continue,” he said.

Charged Last Month

Prosecutors charged Skowron with fraud last month. He was
accused of avoiding more than $30 million of trading losses
after a French doctor serving as a consultant to Rockville,
Maryland-based Human Genome Sciences Inc. passed on that a
hepatitis treatment had adverse affects during trials.

Skowron will plead not guilty, his lawyer, James Benjamin
Jr., said in an April 14 statement. Yves Benhamou, the French
doctor who is alleged to have tipped Skowron to inside
information, pleaded guilty on April 11 and is cooperating with
U.S. prosecutors.

New York-based Morgan Stanley, owner of the world’s largest
brokerage, bought FrontPoint in 2006 for $400 million as part of
a push into alternative assets. FrontPoint managers in March
bought back a majority stake in the firm.

FrontPoint hedge-fund managers include Steven Eisman, who
was profiled by author Michael Lewis in “The Big Short: Inside
the Doomsday Machine.” The book, published last year,
highlighted investors who made money betting against the U.S.
housing market when the real-estate bubble burst in 2007.

Eisman, 48, issued a statement in January that said he was
considering adopting a new “structure” that would give him
more control over his own business. He also pledged to manage
money for FrontPoint and its clients “for many years to come.”

FrontPoint funds overseen by Eisman saw assets decline to
$750 million in January from more than $1 billion in 2010.